TRANSTEXAS GAS CORP, S-3, 1996-12-31

TRANSTEXAS GAS CORP
S-3, 1996-12-31
CRUDE PETROLEUM & NATURAL GAS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1996
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
____________________________________

TRANSTEXAS GAS CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 76-0401023
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1300 EAST NORTH BELT, SUITE 310, HOUSTON, TEXAS 77032-2949, (281) 987-8600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

ED DONAHUE, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1300 EAST NORTH BELT, SUITE 310, HOUSTON, TEXAS 77032-2949, (281) 987-8600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
____________________________________

copy to:

C. ROBERT BUTTERFIELD
GARDERE & WYNNE, L.L.P.
3000 THANKSGIVING TOWER
DALLAS, TEXAS 75201
(214) 999-3000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [x]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================
Proposed Proposed
Title of Class Amount Maximum Maximum Amount of
of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Share(1) Offering Price(1) Fee
- ---------------- ---------- -------------- ----------------- ------------
<S> <C> <C> <C> <C>
Common Stock 250,000 shares $14.50 $3,625,000 $1,098
=======================================================================================
</TABLE>

- ------------------
(1) Based on the average of the high and low prices reported by The Nasdaq
National Market on December 27, 1996

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

================================================================================
<PAGE> 2
******************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
******************************************************************************

SUBJECT TO COMPLETION, DATED DECEMBER 31, 1996

PROSPECTUS
250,000 SHARES

TRANSTEXAS GAS CORPORATION

COMMON STOCK
____________________________________

This Prospectus relates to the sale from time to time of up to 250,000
shares ("Shares") of common stock, $0.01 par value ("Common Stock"), of
TransTexas Gas Corporation ("TransTexas" or the "Company"), by Jefferies &
Company, Inc. (the "Selling Security Holder"). The Company will not receive any
of the proceeds from the sale of such shares by the Selling Security Holder.
See "Use of Proceeds" and "Selling Security Holder."

It is anticipated that the Selling Security Holder may sell the Shares
in underwritten offerings or in open market or block transactions or otherwise
on The Nasdaq Stock Market or a national securities exchange or automated
interdealer quotation system on which shares of Common Stock are then listed, in
the over-the-counter market, or in private transactions, at prices related to
prevailing market prices or at negotiated prices. Some or all of the Shares may
be sold to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions. In effecting
sales, participating broker-dealers or purchasers of the Shares may arrange for
other broker-dealers to participate. Upon any sale of the Common Stock offered
hereby, the Selling Security Holder, any underwriter and any participating
broker-dealers or selling agents may be deemed to be "underwriters" under the
Securities Act of 1933, as amended (the "Securities Act"), and any compensation
received by the Selling Security Holder or any such underwriter or broker-dealer
in connection with such sale, such as a discount, concession or commission, may
be deemed underwriting compensation. The Selling Security Holder has agreed to
pay all costs, fees and expenses incurred in connection with this offering. See
"Plan of Distribution."

The Common Stock is traded on The Nasdaq Stock Market's National
Market ("NNM") under the symbol "TTXG." On December 27, 1996, the closing sale
price of the Common Stock as reported by the NNM was $14.50 per share. See
"Price Range of Common Stock."

SEE "RISK FACTORS" ON PAGE 5 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
_________________________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________________________

THE DATE OF THIS PROSPECTUS IS ______________, 1996
<PAGE> 3
TABLE OF CONTENTS

<TABLE>
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

SELECTED FINANCIAL AND OPERATING DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

PRICE RANGE OF COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

SELLING SECURITY HOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>

__________________________

No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this
Prospectus or any Prospectus Supplement and, if given or made, such
information or representation may not be relied upon as having been
authorized by the Company or any underwriter or agent. This Prospectus and
any Prospectus Supplement do not constitute an offer to sell or a solicitation
of an offer to buy any of the securities offered hereby in any jurisdiction
where, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus or any Prospectus
Supplement nor any sale made hereunder or thereunder shall, under any
circumstances, create any implication that the information herein or therein is
correct as of any time subsequent to their respective dates.

<PAGE> 4
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at its
offices at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, New York, New York 10048. Copies of such materials can also be
obtained by mail from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains an Internet Web site that contains reports,
proxy and information statements and other information regarding the Company
and other registrants that file electronically with the Commission. The
Internet address of the Commission's Web site is http://www.sec.gov. The
Company's Common Stock is listed on The Nasdaq Stock Market's National Market
and reports, proxy and information statements and other information regarding
the Company can be inspected at the offices of the National Association of
Securities Dealers, Inc., 1935 K Street, N.W., Washington, D.C. 20006.

The Company has filed with the Commission a registration statement on
Form S-3 under the Securities Act with respect to the Common Stock described in
this Prospectus (the "Registration Statement"). This Prospectus does not
contain all the information set forth in the Registration Statement and
exhibits and schedules thereto. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and the exhibits and schedules filed as part thereof. Statements contained in
this Prospectus as to the contents of any contract or any other document
referred to are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement. The Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's
principal offices, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part thereto may be obtained from such office
upon payment of prescribed fees.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's annual report on Form 10-K for the fiscal year ended
July 31, 1995 and transition report on Form 10-K for the six months ended
January 31, 1996; quarterly reports on Form 10-Q for the fiscal quarters ended
October 31, 1995, April 30, 1996, July 31, 1996 and October 31, 1996; current
reports on Form 8-K dated September 5, 1995, January 12, 1996, and June 17,
1996; and the Company's Registration Statement on Form 8-A, and Amendment No. 1
thereto, each as filed with the Commission, are incorporated by reference
herein. All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of Common Stock
hereunder shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the filing date of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein, or in any other
subsequently filed document that is also incorporated or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Company will provide a copy of the documents incorporated by
reference herein (other than exhibits to such documents) without charge to each
person to whom this Prospectus is delivered, upon written or oral request by
such person. Requests should be addressed to: TransTexas Gas Corporation, 1300
East North Belt, Suite 310, Houston, Texas 77032-2949, Attention: Investor
Relations (telephone number (281) 987-8600).

2
<PAGE> 5
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more
detailed information and the financial statements (including notes thereto)
appearing elsewhere in this Prospectus or incorporated herein by reference.
Unless the context indicates otherwise, references in this Prospectus to the
"Company" or to "TransTexas" are to TransTexas Gas Corporation and its
subsidiary, TransTexas Transmission Corporation, and the business and assets
transferred to TransTexas on August 24, 1993 by TransAmerican Natural Gas
Corporation ("TransAmerican").

TransTexas Gas Corporation is engaged in the exploration for, and the
development, production, and transportation of, natural gas, primarily in South
Texas. Since 1973, TransTexas has drilled over 1,400 wells and produced more
than 2.5 Tcfe of natural gas (gross). TransTexas also owns and operates a
system (the "Pipeline System") of approximately 1,100 miles of gas gathering
and transmission pipelines with a current daily capacity of 900 MMcfd.
TransTexas' operating efficiency, reflected in its low finding, development and
operating costs, is attributable substantially to its integrated operating
approach and the economies of scale resulting from the geographic concentration
of its producing areas. TransTexas operates substantially all of its
production and performs most of its own leasehold acquisition, geological and
geophysical analysis, engineering design, well site preparation, drilling,
workover, completion, pipeline construction and production services. As of
October 31, 1996, the Company held oil and gas leases in a total of
approximately 715,000 gross acres (549,000 net acres).

For the nine months ended October 31, 1996, the Company's average net
production, including amounts delivered pursuant to volumetric production
payments, was approximately 410 MMcfd, for total net production of 112.4 Bcf of
natural gas. Average net production for the six months ended January 31, 1996
was approximately 363 MMcfd, for a total net production of 66.9 Bcf of
natural gas. For the nine months ended October 31, 1996, the Company's
average lifting cost, including amounts delivered pursuant to volumetric
production payments, was $.29 per Mcfe. As of February 1, 1996, the
Company's proved reserves, based on the evaluation of the Company's independent
petroleum engineers, were 1,157 Bcfe. As discussed below, the Company has sold
certain of these reserves since the date of such reserve report.

Until recently, the Company's operational focus and the source of
substantially all of its production has been the Lower Wilcox Lobo Trend
located in Webb and Zapata Counties of South Texas (the "Lobo Trend"). Since
commencing operations in the Lobo Trend in 1973, TransTexas has drilled over
1,300 wells, with a cumulative 84% completion rate and produced more than 2.5
Tcfe of natural gas (gross). As of October 31, 1996, TransTexas had developed
approximately 32% of its 212,000 gross acres (195,000 net acres) in the Lobo
Trend and was producing natural gas from 818 wells in the area. For the nine
months ended October 31, 1996, TransTexas produced 69.3 Bcf of natural gas from
the Lobo Trend. As of October 31, 1996, TransTexas was drilling three wells,
and completing another two wells in the area. Net daily natural gas production
from its Lobo Trend properties was 253 MMcfd.

In 1994, TransTexas began a program of evaluating prospects outside
the Lobo Trend. In late 1994, TransTexas made a natural gas discovery in the
Bob West North area of southern Zapata County. TransTexas' recent focus has
been on development activities in Bob West North, including drilling, pipeline
construction and production operations. As of October 31, 1996, TransTexas has
drilled 30 wells and completed 25 wells in the area. TransTexas' mineral
interest in Bob West North consists of a 100% working interest in 11,000 gross
acres (10,700 net acres), and a 90% net profits interest in 660 gross acres.
On October 31, 1996, TransTexas was drilling two wells in Bob West North and
completing five wells. For the nine months ended October 31, 1996, TransTexas
produced 27.2 Bcf of natural gas from Bob West North. Management of the
Company believes that the Bob West North area may, prior to the end of fiscal
1997, surpass the Lobo Trend in net daily natural gas production.

3
<PAGE> 6
TransTexas also operates or participates in operations in other areas
in South Texas outside the Lobo Trend (including the La Grulla area in Starr
County and the Cuba Libre area in Webb County), and in Mississippi and North
Dakota. TransTexas' La Grulla and Cuba Libre development areas have not met
with the same degree of success as has its Bob West North development area.
However, management continues to believe that further geological and
geophysical analysis will ultimately result in the addition of reserves and
production from these areas. As of October 31, 1996, TransTexas held in excess
of a 79% working interest in approximately 100,000 gross acres (85,000 net
acres) in the La Grulla area. As of October 31, 1996, TransTexas had daily
gross natural gas production of 2 MMcfd from a total of 13 wells drilled in La
Grulla, of which five had been completed. As of October 31, 1996, TransTexas
held a 95% working interest in approximately 40,000 gross acres (33,000 net
acres) in the Cuba Libre area. As of October 31, 1996, TransTexas was drilling
one natural gas well and had daily gross natural gas production of 5 MMcfd from
a total of 19 wells in Cuba Libre, of which nine had been completed by
TransTexas.

TransTexas is also participating in the exploration and development of
the Lodgepole area of Stark and Dunn Counties in North Dakota. As of October
31, 1996, TransTexas held an average working interest of 80% in approximately
199,000 gross acres (98,000 net acres) in the Lodgepole area. TransTexas has
conducted or participated in a series of 3-D seismic surveys covering more than
270 square miles in order to develop drilling locations and evaluate acreage
holdings. As of October 31, 1996, TransTexas had drilled eight wells and
completed two wells. In addition, as of October 31, 1996, TransTexas was
drilling two wells and was completing one well. Gross production from the two
producing wells was approximately 5,700 barrels of oil for the month of October
1996. In December 1996, the Company completed an additional well which flow
tested at a daily rate of 6,836 barrels of oil on an open choke.

TransTexas, as part of its business strategy, continually evaluates
its assets and may, from time to time, decide to sell certain of its assets.
In July 1996, TransTexas consummated the sale, effective May 1, 1996, of
producing properties in Zapata County, Texas for consideration of approximately
$62 million. In June and August 1996, TransTexas consummated sales, effective
February 1, 1996, of certain producing properties in Webb County, Texas for
consideration of approximately $9.95 million and $21.5 million, respectively.
TransTexas has engaged investment banking firms to assist it in the following
potential transactions: (i) the sale of the remaining Lobo Trend producing
properties in Webb and Zapata Counties, Texas, and associated undeveloped
acreage, (ii) the sale or sale-leaseback of all or a portion of TransTexas'
Pipeline System, and (iii) the sale of its interest in the Lodgepole area. If
any of these transactions are consummated, TransTexas intends to use the
proceeds for general corporate purposes, including a possible repurchase of its
11 1/2% Senior Secured Notes due 2002 in the aggregate principal amount of
$800 million (the "Notes").

FORWARD LOOKING STATEMENTS

Forward-looking statements, within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, are included throughout this
Prospectus. Words such as "anticipates", "expects," "believes" and "likely"
indicated forward-looking statements. The Company's management believes its
current views and expectations are based on reasonable assumptions; however,
there are significant risks and uncertainties that could significantly affect
expected results. Factors that could cause actual results to differ materially
from those in the forward-looking statements include fluctuations in the
commodity prices for natural gas, crude oil, condensate and natural gas liquids,
the extent of the Company's success in discovering, developing and producing
reserves, conditions in the equity and capital markets, the ultimate resolution
of litigation, and competition.

4
<PAGE> 7
RISK FACTORS

Prospective purchasers of the Shares should consider carefully the
specific risk factors set forth below as well as the other information
contained in this Prospectus.

SIGNIFICANT LEVERAGE

At October 31, 1996, the Company's long-term debt, including the
Notes, the BNY Facility (defined below) and certain equipment financing was
approximately $826 million. Additionally, in December 1996, the Company issued
$189 million in face amount of 13 1/4% Series A Senior Subordinated Notes due
2003. See "The Company - Recent Events." Although earnings for the nine months
ended October 31, 1996 were 1.7 times consolidated fixed charges primarily as a
result of a litigation settlement in the second quarter, earnings for the six
months ended January 31, 1996 and the year ended July 31, 1995 were inadequate
to cover fixed charges by $8.6 million and $15.2 million, respectively. The
Company's high degree of leverage has significant consequences, including (i) a
substantial portion of the Company's net cash provided by operations will be
committed to the payment of the Company's interest expense and principal
repayment obligations, (ii) the Company's cash flow is more sensitive to
fluctuations in natural gas prices than less highly leveraged companies, and
(iii) the Company is more highly leveraged than other large companies in the
gas exploration, production and transmission business, which may place it at a
competitive disadvantage. These consequences could adversely affect the
Company's ability to meet its obligations, including obligations to the holders
of the Notes. Further, the Company's ability to fund its current capital
expenditures and debt service requirements and, ultimately, to pay the
principal amounts of the Notes upon maturity in June 2002 from its cash flows
from operations would require significant increases in production. The Company
may have available to it sources of liquidity other than cash flow from
operations, including asset sales, equity offerings or debt financings, to
retire or otherwise refinance the principal amount of the Notes on or prior to
maturity. However, there can be no assurance that such sources will be
available if and when needed on terms acceptable to the Company, or at all.

SUBSTANTIAL CAPITAL REQUIREMENTS; LIQUIDITY

The Company makes substantial capital expenditures for the
exploration, development and production of its natural gas reserves. The
Company has financed these expenditures primarily with cash from operations,
public offerings of debt and equity securities, the sale of production payments,
asset sales and other financings. Total capital expenditures in fiscal 1995
were $278 million, including $134 million for drilling and development, $125
million for lease acquisitions and $17 million for the Pipeline System and other
equipment. For the six months ended January 31, 1996, total capital
expenditures were approximately $205 million, including approximately $145
million for drilling and development, $31 million for lease acquisitions and $29
million for the Pipeline System and other equipment. For the nine months ended
October 31, 1996, total capital expenditures were $206 million, including $16
million for lease acquisitions, $165 million for drilling and development and
$25 million for the Pipeline System and other equipment. The Company
anticipates total capital expenditures of approximately $275 million and $235
million in fiscal 1997 and fiscal 1998, respectively, subject to requirements of
the indenture governing the Notes (the "Indenture") and available cash flow, of
which approximately $230 million and $195 million, respectively, will be used
for drilling and development, $20 million in each year for lease acquisitions,
and $25 million and $20 million, respectively, for the Pipeline System and other
equipment and seismic acquisitions. The Company anticipates that its cash used
for debt service will be approximately $120 million and $105 million in fiscal
1997 and fiscal 1998, respectively. If revenues decrease, certain contingent
obligations of the Company become fixed, or the level of capital expenditures is
limited by the Indenture, the Company may not have sufficient funds for, or may
be restricted in maintaining the level of, capital expenditures necessary to
replace its reserves or to maintain production at current levels and, as a
result, production may decrease over time. Although cash from operating
activities for the nine months ended October 31, 1996 has increased due to sales
of volumetric production payments and a litigation settlement, net cash provided
by operating activities declined over the three and one-half years ended January
31, 1996. In addition to cash flow from operating activities, the Company has
utilized asset sales and various financings to meet its working capital
requirements. The Company anticipates that it will utilize additional financing
or sales of assets, as allowed by the Indenture, to fund planned levels of
operations and to meet its obligations, including its obligations under the

5
<PAGE> 8
Indenture, through January 1997. However, no assurance can be given that the
Company's cash flow from operating activities will be sufficient to meet
planned capital expenditures, contingent liabilities and debt service in the
future.

The Company has engaged investment banking firms to assist it in the
following potential transactions: (i) the sale of the remaining Lobo Trend
producing properties in Webb and Zapata Counties, Texas, and associated
undeveloped acreage, (ii) the sale or sale-leaseback of all or a portion of the
Company's Pipeline System, and (iii) the sale of its interest in the Lodgepole
prospect in North Dakota. If any of these transactions are consummated, the
Company intends to use the proceeds for general corporate purposes, including a
possible repurchase of the Notes.

The Company currently has a $40 million credit facility with BNY
Financial Corporation (the "BNY Facility"), which provides for borrowings based
on the amount of its accounts receivable. At October 31, 1996, the outstanding
balance under the BNY Facility was $14.8 million. The BNY Facility requires the
Company to maintain certain financial ratios and includes certain covenants.
Under the terms of the BNY Facility, as amended in December 1996, the Company's
net loss (including any extraordinary losses) may not exceed $10 million for
any six month period ending on the last day of any fiscal quarter ending after
January 31, 1996.

CHANGE OF CONTROL

The Indenture provides that, upon the occurrence of a Change of
Control (as such term is defined in the Indenture), each holder of the Notes
will have the right to require the Company to repurchase such holder's Notes at
101% of the principal amount thereof plus accrued and unpaid interest. A Change
of Control would be deemed to occur under the Indenture in the case of certain
changes or other events in respect of the ownership or control of the Company,
including any circumstance pursuant to which any person or group, other than
John R. Stanley and his wholly owned subsidiaries or the trustee under the
indenture ("TARC Indenture") governing mortgage notes in the aggregate principal
amount of $440 million (the "TARC Notes") issued by TransAmerican Refining
Corporation ("TARC"), is or becomes the beneficial owner of more than 50% of the
total voting power of the Company's then outstanding voting stock, unless the
Notes have an investment grade rating for the period of 120 days thereafter.
The term "person," as used in the definition of Change of Control, means a
natural person, company, government or political subdivision, agency or
instrumentality of a government and also includes a "group," which is defined as
two or more persons acting as a partnership, limited partnership or other group.
In addition, certain changes or other events in respect of the ownership or
control of the Company that do not constitute a Change of Control under the
Indenture may result in a "change of control" of the Company under the terms of
the BNY Facility and certain equipment financing. Such an occurrence could
create an obligation for the Company to repay such other indebtedness. At
October 31, 1996, the Company had approximately $22.9 million of indebtedness
(excluding the Notes) subject to such right of repayment or repurchase. In the
event of a Change of Control under the Indenture or a "change of control" under
the terms of other outstanding indebtedness, there can be no assurance that the
Company will have sufficient funds to satisfy any such payment obligations.

TARC owns and operates a large petroleum refinery in the Gulf Coast
region along the Mississippi River, approximately 20 miles from New Orleans,
Louisiana. TARC's refinery was shut down in January 1983 and is currently
partially operational. TARC is engaged in a two-phase capital improvement
program ("Capital Improvement Program") designed to reactivate the refinery and
increase its complexity. In February 1995, TARC issued the TARC Notes that
were initially collateralized by, among other things, 55 million shares of
Company Common Stock. In March 1996, TARC sold 4.55 million shares of such
Common Stock to provide additional financing for the Capital Improvement
Program.

TARC has advised the Company as follows: TARC will require substantial
additional financing over the course of the remaining construction period to
complete the Capital Improvement Program. Completion schedules and the amount
of additional expenditures required will depend upon, among other factors, the
structure and timing of additional financing. TARC is currently negotiating
with potential third-party investors to provide for additional funding,
including strategic equity investors, financial investors and foreign producers
of crude oil.

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<PAGE> 9
Primarily because additional financing was not available on a timely
basis, TARC management believes that TARC will not be able to complete Phase I
of the Capital Improvement Program by February 15, 1997. Under the TARC
Indenture, the failure of TARC to complete and test Phase I by February 15,
1997 would constitute an event of default at such date. Any such event of
default could result in the sale, following the occurrence of such event of
default, of some or all of the remaining 50.45 million shares of Common Stock
pledged to collateralize the TARC Notes. A foreclosure on such shares would
constitute a "change of control" of the Company under the BNY Facility and
certain equipment financing, which may create an obligation for the Company to
repay amounts outstanding thereunder, but would not constitute a Change of
Control under the Indenture. A sale of such shares following a foreclosure
could result in a Change of Control under the Indenture. TARC anticipates
that, prior to February 15, 1997, it will solicit the approval of the holders
of the TARC Notes with respect to any elements of a proposed financing that
otherwise would be limited by the terms of the TARC Indenture, as well as to a
revised budget and an extension of the required completion date for Phase I.
There can be no assurance that current negotiations will result in additional
financing for the Capital Improvement Program, that other financing will be
available, or that the requisite approval of the TARC noteholders can be
obtained.

At October 31, 1996, TARC had total assets of $552.3 million,
long-term debt of $352.8 million and stockholder's equity of $99.2 million.
For the nine months ended October 31, 1996, TARC had revenues of $10.9 million,
an operating loss of $36.2 million, and net income of $27.2 million. TARC is
subject to the informational requirements of the Exchange Act and, in
accordance therewith, files reports and other information with the Commission.
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission. Other than the advice
received from TARC set forth above, the foregoing information regarding TARC is
based solely on reports and other documents filed by TARC with the Commission.
The Company makes no representations as to, and disclaims any responsibility
for, the accuracy, adequacy or completeness of the foregoing information or the
information pertaining to TARC contained in the annual report of the Company on
Form 10-K for the year ended July 31, 1995, the transition report of the
Company on Form 10-K for the six months ended January 31, 1996, and the
quarterly reports of the Company on Form 10-Q for the quarters ended October
31, 1995, April 30, 1996, July 31, 1996 and October 31, 1996 incorporated by
reference herein, which should be read in conjunction with other publicly
available information filed by TARC with the Commission.

ABILITY TO REPLACE SHORT-LIVED RESERVES

The Company's Lobo Trend producing properties are characterized by
high initial production, followed by a steep decline in production. The
Company's Bob West North Field production is too recent to establish a reliable
production decline rate. As a result, the Company must find and develop or
acquire new natural gas reserves to replace those being depleted by production.
Without successful drilling or acquisition activities, the Company's reserves
and production will decline rapidly. The Company's business strategy is to add
reserves by pursuing an active drilling program on its existing undeveloped
properties and on properties that it may acquire in the future. There can be
no assurance that production from new wells will be sufficient to replace
production from existing wells during such period.

WORKING CAPITAL DEFICIT

For the five years prior to July 31, 1995, the Company had a working
capital deficit. At July 31, 1995, January 31, 1996 and October 31, 1996, the
Company had working capital of $106.8 million, $43.6 million and $69.5 million,
respectively; however, such amounts include $44.7 million, $46.0 million and
$46.0 million, respectively, of cash restricted pursuant to the Indenture.
Should the Company experience a working capital deficit in the future, the
Company could be forced to reduce capital expenditures or sell assets. Under
the Indenture and the BNY Facility, the Company is required to limit its
capital expenditures in a fiscal quarter if its Working Capital (as defined) at
the end of the preceding quarter is less than $20 million. Working Capital
does not include current assets or current liabilities of unrestricted
subsidiaries. TransTexas Exploration Corporation is an unrestricted
subsidiary.

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MATERIAL PROCEEDINGS AND CONTINGENT LIABILITIES

TransAmerican filed for protection from creditors under the federal
bankruptcy laws in 1975 and 1983. In both cases, certain creditor claims were
compromised. In connection with the 1983 bankruptcy, a group of bank creditors
of TransAmerican (the "Bank Group") filed a motion, which was subsequently
withdrawn, to have a trustee in bankruptcy appointed. See "The Company --
Background."

The Company is involved in many legal proceedings. The litigation and
contingent liabilities of the Company, individually and in the aggregate,
amount to significant potential liability and, if adjudicated adversely, could
have a material adverse effect on the Company. The adverse resolution in any
reporting period of one or more of these matters could have a material adverse
impact on the results of operations or cash flow of the Company for that
period. Although the outcome of these lawsuits cannot be predicted with
certainty, the Company does not expect these matters to have a material adverse
effect on its financial position. See "Legal Proceedings."

NATURAL GAS PRICE FLUCTUATIONS AND MARKETS

The Company's results of operations and the value of its gas and oil
properties are highly dependent upon the prices received for the Company's
natural gas, condensate and natural gas liquids ("NGLs"). Substantially all of
the Company's sales of natural gas are made in the spot market, or pursuant to
contracts based on spot market prices, and not pursuant to long-term,
fixed-price contracts. Accordingly, the prices received by the Company for its
natural gas production are dependent upon numerous factors beyond the control
of the Company, including the level of consumer product demand, the North
American supply of natural gas, government regulations and taxes, the price and
availability of alternative fuels, the level of foreign imports of oil and
natural gas, and the overall economic environment. Demand for natural gas is
seasonal, with demand typically higher during the summer and winter, and lower
during the spring and fall, with concomitant changes in price.

Any significant decline in current prices for natural gas and NGLs
could have a material adverse effect on the Company's financial condition,
results of operations and quantities of reserves recoverable on an economic
basis. In order to mitigate its vulnerability to natural gas price volatility,
the Company has entered into commodity price swap agreements to reduce its
exposure to price risk in the spot market for natural gas. See "The Company --
Hedging." However, a significant portion of the Company's current production
remains subject to natural gas price fluctuations. Based on current levels of
production, certain hedge agreements and historical pricing differentials
between delivery points, the Company estimates that a $0.10 per MMBtu change in
average gas prices received would change annual operating income by
approximately $8 million.

SUBSTANTIVE CONSOLIDATION; BANKRUPTCY

An investment in the Shares involves certain insolvency and bankruptcy
considerations including substantive consolidation and fraudulent transfer
issues. A financial failure by Mr. Stanley, TNGC Holdings Corporation (the
parent corporation of TransAmerican) ("TNGC"), TransAmerican, TransAmerican
Exploration Corporation ("TEXC"), TransAmerican Energy Corporation ("TEC") or
TARC could have adverse consequences for stockholders of the Company if a
bankruptcy court were to "substantively consolidate" the Company with Mr.
Stanley or any of such entities. If a bankruptcy court substantively
consolidated the Company or TransTexas Transmission Corporation, a wholly owned
subsidiary of the Company ("TTC"), with Mr. Stanley, TNGC, TransAmerican, TEXC,
TEC or TARC, the assets of each such entity would be subject to the claims of
creditors of each other such entity. TransAmerican filed for bankruptcy
protection under the federal bankruptcy laws in 1975 and 1983. As a result of
the bankruptcy proceedings, creditors of TransAmerican received less than the
amount to which they would otherwise have been entitled.

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<PAGE> 11
DECONSOLIDATION FOR FEDERAL INCOME TAX PURPOSES

Under certain circumstances, TransAmerican, TEXC, TEC or TARC may sell
or otherwise dispose of shares of Common Stock. If, as a result of any sale or
other disposition of the Company's Common Stock, the direct and indirect
ownership of the Company by TransAmerican is less than 80% (measured by voting
power and value), the Company will no longer be a member of TransAmerican's
consolidated group for federal tax purposes (the "TransAmerican Consolidated
Group") and, with certain exceptions, will no longer be obligated under the
terms and conditions, or entitled to the benefits, of the Tax Allocation
Agreement between the Company, TransAmerican and certain of TransAmerican's
subsidiaries ("Deconsolidation"). Such sales may be necessary to raise funds
necessary to complete TARC's Capital Improvement Program. Further, if TEC or
TARC sells or otherwise transfers any stock of TARC, or issues any options,
warrants or other similar rights relating to such stock, outside of the
TransAmerican Consolidated Group, then a Deconsolidation of both TARC and the
Company from the TransAmerican Consolidated Group would occur. For the taxable
year during which Deconsolidation of the Company occurs, which would also be
the final year that the Company is a member of the TransAmerican Consolidated
Group, TransAmerican would recognize the remaining portion of a previously
deferred gain of approximately $266.3 million associated with the transfer by
TransAmerican and its subsidiaries of their natural gas exploration, production
and transmission business to the Company (the "Asset Transfer"), and would be
required to pay federal income tax on this gain (the tax is estimated to be
between $29 million and $56 million if Deconsolidation occurs in fiscal 1997
and between $24 million and $45 million if Deconsolidation occurs in fiscal
1998). This liability is based on the Company's position that the gain from the
Asset Transfer, which occurred in 1993, was deferred under the consolidated
return regulations. The deferred gain generally is being included in
TransAmerican's taxable income in a manner that corresponds (as to timing and
amount) with the realization by the Company of (and, thus, will be offset by)
the tax benefits (i.e., additional depreciation, depletion and amortization on,
or reduced gain or increased loss from a sale of, the transferred assets)
arising from the additional basis created by the Asset Transfer. If, under the
terms of the TARC Notes, it was reasonably certain when the TARC Notes were
issued that a sufficient amount of the Company's stock would be disposed in the
future to cause a Deconsolidation of the Company from the TransAmerican
Consolidated Group, it is possible that the Deconsolidation of the Company
would be treated as occurring as of the date the TARC Notes were issued.
However, TARC has advised the Company that it believes that when the TARC Notes
were issued it was not reasonably certain that a Deconsolidation of the Company
would occur in the future. Under the Tax Allocation Agreement, the Company is
required to pay TransAmerican each year an amount equal to the lesser of (i)
the reduction in taxes paid by the Company for such year as a result of any
increase in the tax basis of assets acquired by the Company from TransAmerican
that is attributable to the Asset Transfer and (ii) the increase in taxes paid
by TransAmerican for such year and all prior years attributable to gain
recognized by TransAmerican in connection with the contribution of assets by
TransAmerican to the Company (less certain amounts paid by the Company for all
prior years). The Company estimates that if Deconsolidation occurs in fiscal
1997 or 1998, the amount reimbursed to TransAmerican would be between $15
million and $26 million and between $4 million and $7 million, respectively.
Under the terms of the Tax Allocation Agreement, the remaining amount of the
tax relating to the gain would be paid over the remaining lives of the assets
transferred. In addition, the Company could be liable for additional taxes
pursuant to the Tax Allocation Agreement and the several liability provisions
of federal tax law.

Generally, under the Tax Allocation Agreement, if net operating losses
of the Company are used by other members of the TransAmerican Consolidated
Group, then the Company is entitled to the benefit (through reduced current tax
payable) of such losses in later years to the extent the Company has taxable
income, remains a member of the TransAmerican Consolidated Group, and the other
group members have the ability to pay such taxes. If TransAmerican, TEC, TARC
or TEXC transfers shares of the Company (or transfers options or other rights
to acquire such shares) and, as a result of such transfer, Deconsolidation of
the Company occurs, the Company would not thereafter receive any benefit
pursuant to the Tax Allocation Agreement for net operating losses of the
Company used by other members of the TransAmerican Consolidated Group prior to
the Deconsolidation of the Company.

Each member of a consolidated group filing a consolidated federal
income tax return is severally liable to the Internal Revenue Service (the
"IRS") for the consolidated federal income tax liability of the consolidated
group. There

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<PAGE> 12
can be no assurance that TransAmerican will have the ability to satisfy the
above tax obligation at the time due and, therefore, the Company, TARC or TEC
may be required to pay the tax.

Under the Tax Allocation Agreement, the Company will be required to
pay any Texas franchise tax (which is estimated not to exceed $10.6 million)
which may be attributable to any gain recognized by TransAmerican on the Asset
Transfer and will be entitled to any benefits of the additional basis resulting
from the recognition of such gain.

POSSIBLE FEDERAL TAX LIABILITY

Part of the refinancing of TransAmerican's debt in 1993 involved the
cancellation of approximately $65.9 million of accrued interest and of a
contingent liability for interest of $102 million owed by TransAmerican.
TransAmerican has taken the federal tax position that the entire amount of this
debt cancellation is excluded from its income under the cancellation of
indebtedness provisions of the Internal Revenue Code of 1986, as amended ("COD
Exclusion"). Although the Company believes that there is substantial legal
authority to support the position that the COD Exclusion applies to the
cancellation of TransAmerican's indebtedness, due to factual and legal
uncertainties there can be no assurance that the IRS will not challenge this
position, or that the Company's position would be upheld. Under the Tax
Allocation Agreement, the Company has agreed to pay an amount equal to any
federal tax liability (which would be approximately $25.4 million) attributable
to the inapplicability of the COD Exclusion. Pursuant to the Tax Allocation
Agreement, any such tax would be offset in future years by alternative minimum
tax credits and investment tax credit carryforwards to the extent recoverable
from TransAmerican.

CONTROL BY TRANSAMERICAN AND TNGC; POTENTIAL CONFLICTS OF INTEREST

TransAmerican is the indirect controlling stockholder of the Company.
TransAmerican is wholly owned by TNGC. As a member of the board of directors
and chief executive officer of TransAmerican and the Company and sole
stockholder, sole director and chief executive officer of TransAmerican and
TNGC, John R. Stanley will be in a position to control or significantly
influence the management and operations of the Company, including actions with
respect to pending and any future litigation. There can be no assurance that
conflicts will not arise between TNGC, TransAmerican, TNGC's other subsidiaries
and Mr. Stanley, on one hand, and the other stockholders of the Company, on the
other. In addition, Mr. Stanley has guaranteed certain indemnity obligations
of TransAmerican and the Company and certain debt of the Company. The
Company's response to any litigation or any indemnification demand may be
influenced by TransAmerican or Mr. Stanley in a manner that could be adverse to
the other stockholders of the Company. TransAmerican and its existing
subsidiaries, including the Company, are parties to the Tax Allocation
Agreement, the general terms of which provide for TransAmerican and all of its
subsidiaries to file federal income tax returns as members of a consolidated
group. The Tax Allocation Agreement requires the Company, TEC and TARC to make
certain payments to TransAmerican to enable TransAmerican to pay its federal or
alternative minimum tax. In the event of an IRS audit or examination, the Tax
Allocation Agreement generally gives TransAmerican the authority to compromise
or settle disputes and to control litigation, subject to the approval of the
Company, TEC or TARC, as the case may be, where such compromise or settlement
affects the determination of the separate tax liability of that company.

INDENTURE RESTRICTIONS

The Indenture limits the Company's ability to incur additional
indebtedness, transfer or sell assets, transfer assets to subsidiaries or
create new subsidiaries, pay dividends or make other restricted payments,
create liens, enter into certain transactions with affiliates or consummate a
merger, consolidation or sale of all or substantially all of its assets. There
can be no assurance that these limitations will not adversely affect the
Company's results of operations or financial condition.

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COMPETITION

The Company competes in the highly competitive areas of natural gas
exploration, development, production and transportation. Many of the Company's
competitors have substantially larger financial resources, staffs and
facilities than the Company.

DRILLING RISKS

Drilling activities are subject to numerous risks, including
mechanical risk and the risk that no commercially productive reservoirs will be
encountered. There can be no assurance that new wells drilled by the Company
will be productive or that the Company will recover all or any portion of its
investment. The cost of drilling, completing and operating wells is often
uncertain. The Company's drilling operations may be curtailed, delayed or
canceled as a result of numerous factors, many of which are beyond the
Company's control, including title problems, weather conditions, compliance
with governmental requirements and shortages or delays in the delivery of
equipment and services.

OPERATING HAZARDS AND UNINSURED RISKS

The Company's operations are subject to hazards and risks inherent in
drilling for, and the production, processing and transportation of, natural
gas, such as fires, explosions, encountering formations with abnormal
pressures, blowouts, cratering, pipeline ruptures and spills, any of which can
result in loss of hydrocarbons, environmental pollution, personal injury claims
and other damage to properties of the Company and others. The Company's
insurance coverage includes, among other things, operator's extra expense,
physical damage on certain assets, employer's liability, comprehensive general
liability, automobile and workers' compensation insurance. The Company
believes that its insurance is adequate and customary for companies of a
similar size engaged in operations similar to those of the Company, but losses
can occur for uninsurable or uninsured risks or in amounts in excess of
existing insurance coverage.

GOVERNMENT REGULATIONS

The Company's business is subject to certain federal, state and local
laws and regulations relating to the exploration for and the development,
production and transportation of natural gas, as well as environmental and
safety matters. Many of these laws and regulations have become more stringent
in recent years, often imposing greater liability on a larger number of
potentially responsible parties. Because the requirements imposed by such laws
and regulations are frequently changed, the Company is unable to predict the
ultimate cost of compliance with these requirements or their effect on its
operations.

RELIANCE ON ESTIMATES OF PROVED RESERVES

There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company. The
reserve data incorporated by reference in this Prospectus represent only
estimates prepared by Netherland, Sewell & Associates, Inc. Gas reserve
assessment is a subjective process of estimating the recovery from underground
accumulations of gas that cannot be measured in an exact way, and estimates of
other persons might differ materially from those of Netherland, Sewell &
Associates, Inc. Certain events, including production, acquisitions and future
drilling and development could result in increases or decreases in estimated
quantities of proved reserves. In addition, estimates of the Company's future
net revenues from proved reserves and the present value thereof are based on
certain assumptions regarding future natural gas prices, production levels,
production and ad valorem taxes and operating and development costs that may
not prove to be correct over time.

FUTURE SALES OF COMMON STOCK

As of the date of this Prospectus, 14,650,000 shares of Common Stock
(representing approximately 19.8% of the outstanding Common Stock) are owned by
the public. The Company is unable to predict the effect, if any, that

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<PAGE> 14
future sales of shares of Common Stock covered hereby would have on the market
price of the Common Stock prevailing from time to time. However, the sale of a
substantial portion of the Shares could have an adverse effect on the market
price of the Common Stock. Although the Company does not currently contemplate
a primary offering of Common Stock, the Company may sell shares of Common
Stock in a public or private offering in the future.

In January 1996, the Company entered into a reimbursement agreement
with an unaffiliated third party pursuant to which the third party caused a $20
million letter of credit to be issued to secure a supersedeas bond on behalf of
the Company in a legal proceeding. If there is a draw under the letter of
credit, the Company is required to reimburse the third party within 60 days.
See " -- Substantial Capital Requirements; Liquidity." The Company has agreed
to issue up to 8.6 million shares of Common Stock to the third party if this
contingent obligation to such third party becomes fixed and remains unpaid for
60 days. See "The Company -- Recent Events." The Company does not believe
that this contingency will occur. If the obligation becomes fixed, and
alternative sources of capital are not available, the Company could elect to
sell shares of Common Stock prior to the maturity of the obligation and use the
proceeds of such sale to repay the third party. If these shares are issued,
their sale could have an adverse effect on the market price of the Common
Stock.

TARC is engaged in a two-phase Capital Improvement Program designed to
reactivate its refinery and increase its complexity. TARC has advised the
Company as follows: TARC will require substantial additional financing over the
course of the remaining construction period to complete the Capital Improvement
Program. Completion schedules and the amount of additional expenditures
required will depend upon, among other factors, the structure and timing of
additional financing. TARC is currently negotiating with potential third-party
investors to provide for additional funding, including strategic equity
investors, financial investors and foreign producers of crude oil. Primarily
because additional financing was not available on a timely basis, TARC
management believes that TARC will not be able to complete Phase I of the
Capital Improvement Program by February 15, 1997. Under the TARC Indenture,
the failure of TARC to complete and test Phase I by February 15, 1997 would
constitute an event of default at such date. Any such event of default could
result in the sale, following the occurrence of such event of default, of some
or all of the remaining 50.45 million shares of Common Stock pledged to
collateralize the TARC Notes. The sale of such shares following a foreclosure
could have a material adverse effect on the market price of the Common Stock.

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<PAGE> 15
THE COMPANY

GENERAL

TransTexas Gas Corporation is engaged in the exploration for and the
development, production, and transportation of natural gas primarily in South
Texas. The address of the Company's principal executive offices is 1300 East
North Belt, Suite 310, Houston, Texas 77032-2949, and its telephone number at
that address is (281) 987-8600.

BACKGROUND

The Company was organized in May 1993 to facilitate the refinancing of
$349.9 million of indebtedness of TransAmerican. The Company is currently an
indirect subsidiary of TransAmerican. The Company's operations consist of the
natural gas exploration, production and transmission businesses of
TransAmerican, which were transferred to the Company in August 1993.

Founded in 1958 by John R. Stanley with a single gas station,
TransAmerican grew rapidly and by the mid-1970s had developed into a chain of
over 200 independent gasoline stations in New England and New York. In the
early 1970s, TransAmerican sought to vertically integrate its gasoline
operations by purchasing a refinery in Louisiana. In a further effort to
vertically integrate, TransAmerican entered the exploration and production
business by acquiring certain oil and gas properties in South Texas. As a
result of its successful gas drilling program in South Texas, in 1974
TransAmerican began constructing gas gathering and transmission facilities.

In 1974, TransAmerican also began construction of a $140 million
ammonia plant which would use natural gas from its South Texas drilling
operations as feedstock. Primarily as a result of a collapse in ammonia
prices, TransAmerican was unable to obtain sufficient financing to complete
construction of the plant. Unable to meet its obligations, TransAmerican and
its affiliates filed a voluntary bankruptcy petition on October 31, 1975.
TransAmerican began operating pursuant to a confirmed plan of reorganization in
May 1980. Under such plan of reorganization, TransAmerican provided full
payment with interest to substantially all creditors with the exception that
claims of creditors of its ammonia plant subsidiary were compromised.

TransAmerican acquired the refining facility in 1971. Between 1979
and 1982, TransAmerican began to modernize and expand its refinery. This
expansion was largely financed through a $750 million credit facility. As a
result of regulatory changes, TransAmerican's natural gas sales to certain
intrastate pipelines became subject to proration, which significantly reduced
sales to several key customers. In 1982, before all the units of the refinery
were completed, oil prices soared, refining margins collapsed, and interest on
TransAmerican's floating-rate debt exceeded 20% per annum. As a result,
TransAmerican was unable to meet all of its financial obligations, and in
January 1983, TransAmerican filed a voluntary bankruptcy petition. In 1985,
following allegations of mismanagement and misrepresentation by TransAmerican's
management made by the Bank Group and others in connection with attempts to
have a trustee in bankruptcy appointed by the court, TransAmerican appointed a
majority of independent directors to alleviate these concerns and to secure the
knowledge and experience of the independent directors to assist TransAmerican
in its reorganization efforts and in future operations. TransAmerican emerged
from bankruptcy in October 1987 under a confirmed plan of reorganization.
Under the plan of reorganization, TransAmerican agreed to pay the secured
creditors substantially all of their allowed pre-petition claims with interest
(subject to the option of certain creditors to discount their claims in return
for earlier payment) and to conduct its business subject to significant
operating restrictions. Despite these operating restrictions, TransAmerican
was able to increase its profitability and its proved reserves in South Texas
and to make significant improvements to the Pipeline System. As a condition of
the bankruptcy plan, TransAmerican formed TARC as a wholly owned subsidiary and
transferred its refinery's net assets to TARC.

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OPERATING ACTIVITY

TransTexas is engaged in the exploration for, and the development,
production, and transportation of, natural gas, primarily in South Texas.
Since 1973, TransTexas has drilled over 1,400 wells and produced more than 2.5
Tcfe of natural gas (gross). TransTexas also owns and operates a Pipeline
System consisting of approximately 1,100 miles of gas gathering and
transmission pipelines with a current daily capacity of 900 MMcfd. TransTexas'
operating efficiency, reflected in its low finding, development and operating
costs, is attributable substantially to its integrated operating approach and
the economies of scale resulting from the geographic concentration of its
producing areas. TransTexas operates substantially all of its production and
performs most of its own leasehold acquisition, geological and geophysical
analysis, engineering design, well site preparation, drilling, workover,
completion, pipeline construction and production services. As of October 31,
1996, the Company held oil and gas leases in a total of approximately 715,000
gross acres (549,000 net acres).

For the nine months ended October 31, 1996, the Company's average net
production, including amounts delivered pursuant to volumetric production
payments, was approximately 410 MMcfd, for total net production of 112.4 Bcf of
natural gas. Average net production for the six months ended January 31, 1996
was approximately 363 MMcfd, for a total net production of 66.9 Bcf of natural
gas. For the nine months ended October 31, 1996, the Company's average lifting
cost, including amounts delivered pursuant to volumetric production payments,
was $.29 per Mcfe. As of February 1, 1996, the Company's proved reserves,based
on the evaluation of the Company's independent petroleum engineers, were
1,157 Bcfe. As discussed below, the Company has sold certain of these reserves
since the date of such reserve report.

Until recently, the Company's operational focus and the source of
substantially all of its production has been the Lobo Trend. Since commencing
operations in the Lobo Trend in 1973, TransTexas has drilled over 1,300 wells,
with a cumulative 84% completion rate and produced more than 2.5 Tcfe of
natural gas (gross). As of October 31, 1996, TransTexas had developed
approximately 32% of its 212,000 gross acres (195,000 net acres) in the Lobo
Trend and was producing natural gas from 818 wells in the area. For the nine
months ended October 31, 1996, TransTexas produced 69.3 Bcf of natural gas from
the Lobo Trend. As of October 31, 1996, TransTexas was drilling three wells,
and completing another two wells in the area. Net daily natural gas production
from its Lobo Trend properties was 253 MMcfd.

TransTexas also operates or participates in operations in other areas
in South Texas outside the Lobo Trend (including the La Grulla area in Starr
County and the Cuba Libre area in Webb County), and in Mississippi and North
Dakota. TransTexas' La Grulla and Cuba Libre development areas have not met
with the same degree of success as has its Bob West North development area.
However, management continues to believe that further geological and
geophysical analysis will ultimately result in the addition of reserves and
production from these areas. As of October 31, 1996, TransTexas held in excess
of a 79% working interest in approximately 100,000 gross acres (85,000 net
acres) in the La Grulla area. As of October 31, 1996, TransTexas had daily
gross natural gas production of 2 MMcfd from a total of 13 wells drilled in La
Grulla, of which five had been completed. As of October 31, 1996, TransTexas
held a 95% working interest in approximately 40,000 gross acres (33,000 net
acres) in the Cuba Libre area. As of October 31, 1996, TransTexas was drilling
one natural gas well and had daily gross natural gas production of 5 MMcfd from
a total of 19 wells in Cuba Libre, of which nine had been completed by
TransTexas.

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TransTexas is also participating in the exploration and development of
the Lodgepole area of Stark and Dunn Counties in North Dakota. As of October
31, 1996, TransTexas held an average working interest of 80% in approximately
199,000 gross acres (98,000 net acres) in the Lodgepole area. TransTexas has
conducted or participated in a series of 3-D seismic surveys covering more than
270 square miles in order to develop drilling locations and evaluate acreage
holdings. As of October 31, 1996, TransTexas had drilled eight wells and
completed two wells. In addition, as of October 31, 1996, TransTexas was
drilling two wells and was completing one well. Gross production from the two
producing wells was approximately 5,700 barrels of oil for the month of October
1996. In December 1996, the Company completed an additional well which flow
tested at a daily rate of 6,836 barrels of oil on an open choke.

HEDGING

Beginning in April 1995, the Company entered into commodity price swap
agreements (the "Hedge Agreements") to reduce its exposure to price risk in the
spot market for natural gas. Pursuant to the Hedge Agreements, either the
Company or the counterparty thereto is required to make a payment to the other
at the end of each month (the "Settlement Date"). The payments equal the
product of a notional quantity ("Base Quantity") of natural gas and the
difference between a specified fixed price ("Fixed Price") and a market price
("Floating Price") for natural gas. The Floating Price is determined by
reference to natural gas futures contracts traded on the New York Mercantile
Exchange ("NYMEX"). The Hedge Agreements provide for the Company to make
payments to the counterparty to the extent that the Floating Price exceeds the
Fixed Price, and for the counterparty to make payments to the Company to the
extent that the Floating Price is less than the Fixed Price. For the three and
nine months ended October 31, 1996, the Company incurred net settlement losses
pursuant to the Hedge Agreements totaling approximately $5.4 million and $23.9
million, respectively. As of October 31, 1996, the Company had Hedge
Agreements with Settlement Dates ranging from November 1996 through April 1997
involving total Base Quantities aggregating approximately 36.4 TBtu of natural
gas. Fixed Prices for these agreements range from $1.70 to $1.72 per MMBtu
($1.76 to $1.78 per Mcf). Floating Prices may not exceed a maximum (the
"Maximum Floating Price") of $2.20 per MMBtu ($2.28 per Mcf). At October 31,
1996, the estimated cost to settle these Hedge Agreements would have been
approximately $15.4 million. These agreements are accounted for as hedges and
accordingly, any gains or losses are deferred and recognized in the month the
physical volumes are delivered. At October 31, 1996, the Company maintained
$7.2 million in margin accounts related to the Hedge Agreements. The Company
may be required to post additional cash margin whenever the daily natural gas
futures prices as reported on the NYMEX, for each of the months in which the
swap agreements are in place, exceed the Fixed Price. The maximum margin call
under each Hedge Agreement will never exceed the product of the Base Quantity
for the remaining months under such Hedge Agreement multiplied by the
difference between the Maximum Floating Price and the Fixed Price.

In June 1996, the Company entered into a Master Swap Agreement (the
"Master Swap Agreement") with one of its swap counterparties, which replaced a
previously existing master agreement governing the swaps between the two
parties. The Company's obligations under the Master Swap Agreement are
collateralized by a mortgage on a substantial portion of the Company's
producing properties. In accordance with the Indenture, the lien created by
the mortgage collateralizes obligations up to a maximum of $80.8 million (10%
of the SEC PV10 of the Company's most recent reserve report as of the creation
of the mortgage). As contemplated by the Indenture, the Trustee under the
Indenture

15
<PAGE> 18
has subordinated the lien collateralizing the Notes outstanding thereunder to
the lien collateralizing the Company's obligations under the Master Swap
Agreement. The maximum amount of obligations of the Company that could be
collateralized by the mortgage, based on the swaps in place under the Master
Swap Agreement as of December 9, 1996, is approximately $9.1 million. Subject
to compliance with certain collateral coverage tests, the Company is not
required to provide additional cash margin for any swaps now or hereafter
subject to the Master Swap Agreement.

RECENT EVENTS

In December 1996, the Company issued $189 million in face amount of 13
1/4% Series A Senior Subordinated Notes due 2003 ("Subordinated Notes") to
unaffiliated third parties. The Subordinated Notes were sold with original
issue discount at a price equal to 52.6166% of the principal amount shown on
the face thereof, for gross proceeds of approximately $99.45 million. The
Subordinated Notes accrete at a rate of 13 1/4% compounded semi-annually. At
such time as the Notes are rated "B1" or better by Moody's Investors Service,
Inc. and "BB" or better by Standard & Poor's Corporation, Inc., or when the
Notes are paid in full, the Subordinated Notes will be exchanged for notes
bearing interest at a rate of 13 1/4% per annum, payable semi-annually on
December 31 and June 30. In addition, the holders of the Subordinated Notes
will have the right to exchange their notes for notes to be registered under
the Securities Act of 1933, as amended. Proceeds from the issuance of the
Subordinated Notes will be used for working capital and general corporate
purposes.

16
<PAGE> 19

SELECTED FINANCIAL AND OPERATING DATA

On January 12, 1996, the Company changed its fiscal year end for
financial reporting purposes from July 31 to January 31. The following table
sets forth selected financial data of the Company for and at the end of each of
the five fiscal years in the period ended July 31, 1995, the six-month
transition period ended January 31, 1996 and the comparable six-month period
ended January 31, 1995 and the nine months ended October 31, 1995 and 1996, and
operating data of the Company for such periods. The financial data for the
fiscal years ended July 31, 1991, 1992, 1993, 1994 and 1995, and the six months
ended January 31, 1996, have been derived from the audited consolidated
financial statements of the Company. The financial data for the six months
ended January 31, 1995 and the nine months ended October 31, 1995 and 1996, are
derived from the unaudited financial statements of the Company. The data for
the six months ended January 31, 1995 and the nine months ended October 31,
1995 and 1996, contain all adjustments (consisting only of normal recurring
accruals) necessary, in the opinion of management of the Company, for a fair
presentation thereof. The results of operations for the nine-month periods
presented are not necessarily indicative of the results to be expected for an
entire year.

<TABLE>
<CAPTION>
Six Months
Year Ended July 31, Ended January 31,
----------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
----------------------------------------------------- ------------------
(dollars in thousands, except per share amounts)

<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Gas, condensate, and natural gas
liquids . . . . . . . . . . . . . . . . . $193,235 $227,208 $294,753 $302,522 $275,627 $143,304 $124,663
Transportation revenues . . . . . . . . . 31,870 30,749 30,816 33,240 36,787 19,161 15,892
Other revenues . . . . . . . . . . . . . . 704 223 247 157 285 52 601
-------- -------- -------- -------- -------- -------- --------
225,809 258,180 325,816 335,919 312,699 162,517 141,156
Operating costs and expenses . . . . . . . 55,479 75,416 99,982 103,459 99,310 50,893 45,629
Depreciation, depletion,
and amortization . . . . . . . . . . . . 92,427 96,523 95,016 113,858 129,964 70,345 60,894
General and administrative
expenses . . . . . . . . . . . . . . . . 21,632 27,855 23,613 40,311 31,935 12,595 13,685
Litigation settlements . . . . . . . . . . -- -- (5,600) (1,000) -- -- (18,300)
Net interest expense . . . . . . . . . . 354 1,703 2,442 50,155 65,797 29,059 40,436
Income taxes and other . . . . . . . . . . 14,526 4,274 16,746 5,380 (2,415) (131) (416)
Extraordinary loss, net of taxes . . . . . -- -- -- -- 56,637 -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . . $ 41,391 $ 52,409 $ 93,617 $ 23,756 $(68,529) $ (244) $ (772)
======== ======== ======== ======== ======== ======== ========

Net income (loss) per share: (1)
Income (loss) before extraordinary item . $ 0.33 $ (0.16) $ -- $ ($.01)

Extraordinary item . . . . . . . . . . . -- (0.77) -- --
-------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . $ 0.33 $ (0.93) $ -- $ (0.01)
======== ======== ======== =======

Dividends declared per common
share (2) . . . . . . . . . . . . . . . . -- -- -- --

Ratio of earnings to
consolidated fixed charges(3) . . . . . . 27.4x 17.8x 34.9x(4) 1.5x --(5) --(5) --(5)

OTHER FINANCIAL DATA:
EBITDA(6) . . . . . . . . . . . . . . . . $150,466 $156,573 $208,635 $195,044 $184,695 $100,224 $103,413
Net cash provided (used) by:
Operating activities(14) . . . . . . . . 139,904 131,869 184,466 136,243 94,312 74,332 52,172
Investing activities . . . . . . . . . . (82,667) (88,515) (142,848) (237,781) (309,415) (105,326) (136,664)
Financing activities . . . . . . . . . . (1,600) (1,652) 507 484,631 284,224 18,249 13,055

OPERATING DATA:
Gas sales volumes (Bcf)(9) . . . . . . . . 120.8 128.4(7) 119.3 130.9 147.9 76.9 66.9
Average gas prices (dry)(per Mcf)(10). . . $1.32 $1.36 $1.98 $1.96 $1.40 $1.41 $1.65
Average finding costs (per Mcfe) . . . . . $.54 $.66(8) $1.01 $1.12 $ .21 $ .32 $1.06
Average lifting costs (per Mcfe) . . . . . $.22 $.19 $.22 $.24 $ .21 $.21 $ .23
Number of gross wells drilled . . . . . . 68 71 103 140 97 60 60
Percentage of wells drilled
completed . . . . . . . . . . . . . . . . 90% 82% 85% 83% 77% 78% 75%
Net proved reserves(11):
Gas (MMcf) . . . . . . . . . . . . . . . 683,492 686,212 695,011 717,367 1,122,645 943,427 1,139,127
Condensate (MBbls) . . . . . . . . . . . 1,741 2,171 1,968 1,935 3,049 2,637 2,903
SEC PV10(12) . . . . . . . . . . . . . . $314,423 $623,173 $701,434 $544,387 $547,646 $533,281 $808,062

BALANCE SHEET DATA:
Working capital (deficit)(13) . . . . . . $(35,073) $(35,295) $(56,949) $(8,865) $106,836 $(56,749) $43,602
Net property and equipment . . . . . . . 300,074 292,587 341,976 462,340 601,460 498,165 715,340
Total assets . . . . . . . . . . . . . . 312,405 306,842 360,241 583,591 826,570 594,738 923,634
Total debt . . . . . . . . . . . . . . . 3,105 3,246 8,270 500,000 800,000 518,701 824,241
Stockholders' equity (deficit) . . . . . 143,034 153,741 204,575 (85,139) (153,668) (85,383) (154,440)

<CAPTION>
Nine Months
Ended October 31,
--------------------
1995 1996
--------------------

<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Gas, condensate, and natural gas
liquids . . . . . . . . . . . . . . . . . $190,447 $228,694
Transportation revenues . . . . . . . . . 25,777 25,798
Other revenues . . . . . . . . . . . . . . 294 8,302
-------- --------
216,518 262,794
Operating costs and expenses . . . . . . . 70,123 92,762
Depreciation, depletion,
and amortization . . . . . . . . . . . . 86,277 92,356
General and administrative
expenses . . . . . . . . . . . . . . . . 24,719 35,324
Litigation settlements . . . . . . . . . . (18,300) (96,000)
Net interest expense . . . . . . . . . . 56,102 70,438
Income taxes and other . . . . . . . . . . (2,284) 2,729
Extraordinary loss, net of taxes . . . . . 56,637 --
-------- --------
Net income (loss) . . . . . . . . . . $(56,756) $ 65,185
======== ========

Net income (loss) per share: (1)
Income (loss) before extraordinary item . -- $ 0.88

Extraordinary item . . . . . . . . . . . (0.77) --
-------- --------
Net income (loss) . . . . . . . . . . . . $ (0.77) $ 0.88
======== ========

Dividends declared per common
share (2) . . . . . . . . . . . . . . . . -- --

Ratio of earnings to
consolidated fixed charges(3) . . . . . . --(5) 1.7x(4)

OTHER FINANCIAL DATA:
EBITDA(6) . . . . . . . . . . . . . . . . $144,157 $234,447
Net cash provided (used) by:
Operating activities(14) . . . . . . . . 23,580 162,827
Investing activities . . . . . . . . . . (258,407) (134,821)
Financing activities . . . . . . . . . . 261,329 (19,610)

OPERATING DATA:
Gas sales volumes (Bcf)(9) . . . . . . . . 103.5 112.4
Average gas prices (dry)(per Mcf)(10). . . $ 1.40 $ 1.87
Average finding costs (per Mcfe) . . . . . n/a n/a
Average lifting costs (per Mcfe) . . . . . $ .23 $ .29
Number of gross wells drilled . . . . . . 68 111
Percentage of wells drilled
completed . . . . . . . . . . . . . . . . 60% 73%
Net proved reserves(11):
Gas (MMcf) . . . . . . . . . . . . . . . n/a n/a
Condensate (MBbls) . . . . . . . . . . . n/a n/a
SEC PV10(12) . . . . . . . . . . . . . . n/a n/a

BALANCE SHEET DATA:
Working capital (deficit)(13) . . . . . . $ 65,301 $ 69,524
Net property and equipment . . . . . . . 634,409 753,822
Total assets . . . . . . . . . . . . . . 852,770 943,607
Total debt . . . . . . . . . . . . . . . 801,049 826,360
Stockholders' equity (deficit) . . . . . (160,439) (152,656)
</TABLE>

17
<PAGE> 20
- ------------

(1) Net income per share for the year ended July 31, 1994 gives effect to
69,000,000 shares of Common Stock outstanding after the 69,000-for-1
stock split which was effected in February 1994. Per share data for
prior years is omitted because the Company's predecessor ("TGC") was
not a separate entity with its own capital structure.

(2) The Indenture contains certain restrictions with respect to the
payment of dividends on the Company's Common Stock.

(3) For purposes of determining the ratio of earnings to consolidated
fixed charges, earnings are defined as pre-tax income plus
consolidated fixed charges. Consolidated fixed charges consist of
interest expense on all indebtedness and the portion of operating
lease rental expense that represents the interest factor.

(4) The ratio for the year ended July 31, 1993 would be 33.2x if the gain
on litigation settlement of $5.6 million was excluded from income
before taxes. Earnings for the nine months ended October 31, 1996
would have been inadequate to cover consolidated fixed charges by
$39.4 million if the gain on litigation settlement of $96 million was
excluded from income before taxes.

(5) Earnings for the year ended July 31, 1995, the six months ended
January 31, 1995 and 1996 and the nine months ended October 31, 1995,
were inadequate to cover consolidated fixed charges by $15.2 million,
$0.4 million, $8.6 million and $7.3 million, respectively.

(6) EBITDA consists of earnings before consolidated fixed charges
(excluding capitalized interest), income taxes, depreciation, depletion
and amortization. Consolidated fixed charges consist of interest
expense on all indebtedness and a portion of operating lease rental
expense that represents the interest component. EBITDA includes
litigation accruals of $5.3 million, $3.1 million, $8.1 million, $13.0
million and $7.0 million for the years ended July 31, 1991, 1992, 1993,
1994 and 1995, respectively, and $7.0 million and $12.5 million for the
nine months ended October 31, 1995 and 1996, respectively. EBITDA
includes gains on litigation settlements of $5.6 million and $1.0
million for the years ended July 31, 1993 and 1994, respectively,
$18.3 million for the six months ended January 31, 1996 and the nine
months ended October 31, 1995, respectively, and $96 million for the
nine months ended October 31, 1996. EBITDA is not presented in
accordance with GAAP and should not be used in lieu of GAAP
presentations of results of operations and cash flows.

(7) Includes a 3.5 Bcf adjustment resulting from a favorable litigation
settlement.

(8) Average finding costs for the year ended July 31, 1992 were $0.64 per
Mcfe after giving effect to a favorable litigation settlement.

(9) Sales volumes for the nine months ended October 31, 1996 include 23.5
Bcf delivered pursuant to a volumetric production payment.

(10) Average price for the nine months ended October 31, 1996 includes
amounts delivered under volumetric production payments. The average
gas price for the Company's undedicated production for this period was
$2.05 per Mcf. Gas prices do not include the effect of hedging
agreements.

(11) These reserve data are estimates of the Company's proved reserves as
of August 1, 1991, 1992, 1993, 1994 and 1995 and February 1, 1996, as
evaluated by Netherland, Sewell & Associates, Inc. See "Risk Factors
-- Reliance on Estimates of Proved Reserves."

(12) As of February 1, 1996, the sales price used for purposes of
estimating the Company's proved reserves and the future net cash flow
from those reserves was $1.95 per Mcf of natural gas and $18.34 per
Bbl of condensate.

<PAGE> 21
(13) All periods before August 24, 1993 exclude all cash and accounts
receivable of the Company because TransAmerican did not transfer those
assets to the Company. Working capital includes $44.7 million, $46.0
million and $46.0 million at July 31, 1995, January 31, 1996 and
October 31, 1996, respectively, of cash restricted pursuant to the
Indenture.

(14) In the nine month period ended October 31, 1996, operating activities
included $96 million relating to a litigation settlement and $58.6
million relating to a volumetric production payment.

18
<PAGE> 22
LEGAL PROCEEDINGS

The following is a description of certain legal proceedings of
TransTexas and certain legal proceedings of TransAmerican including disputed
claims under its plan of reorganization. As part of the Asset Transfer,
TransTexas assumed liability for litigation up to $15 million plus the
difference, if any, between $10 million and the costs (if less than $10
million) incurred to resolve the disputed claims. Pursuant to the agreement
relating to the Asset Transfer, as amended, TransAmerican has agreed to
indemnify TransTexas against all losses incurred by TransTexas in excess of $25
million in connection with (a) disputed claims in TransAmerican's bankruptcy
and (b) other litigation assumed by TransTexas and other agreements related to
TransAmerican's plan of reorganization (other than settlements and judgments
paid from escrowed cash established in connection with TransAmerican's plan of
reorganization). TransAmerican is required to indemnify TransTexas for all
future losses incurred in connection with litigation or bankruptcy claims
assumed in the Asset Transfer. As of October 31, 1996, TransAmerican owed the
Company approximately $7 million relating to this agreement. There can be no
assurance that TransAmerican will have the financial ability to meet its
indemnification obligations. See "Risk Factors -- Material Proceedings and
Contingent Liabilities."

Finkelstein. On April 15, 1990, H.S. Finkelstein filed suit against
TransAmerican in the 49th Judicial District Court, Zapata County, Texas,
alleging that TransAmerican failed to pay royalties and improperly marketed oil
and gas produced from certain leases. On September 27, 1994, the plaintiff
added TransTexas as an additional defendant. On January 6, 1995, a judgment
against TransAmerican and TransTexas was entered for approximately $18 million
in damages, interest and attorneys' fees. TransTexas and TransAmerican have
appealed the judgement to the Fourth Court of Appeals, San Antonio, Texas. The
Fourth Court of Appeals affirmed the judgment on April 3, 1996. TransTexas and
TransAmerican filed a motion for rehearing. On August 14, 1996, the Fourth
Court of Appeals reversed the trial court judgment and rendered judgment in
favor of TransAmerican and TransTexas. On August 29, 1996, the plaintiff filed
a motion for stay and a motion for rehearing with the court. On October 9,
1996, the court denied Finkelstein's rehearing request, and the case will now
proceed to the Supreme Court of Texas.

On April 22, 1991, the plaintiff filed a separate suit against
TransAmerican and various affiliates in the 49th Judicial District Court,
Zapata County, Texas, alleging an improper calculation of overriding royalties
allegedly owed to the plaintiff and seeking damages in an unspecified amount.
On November 18, 1993, the plaintiff added TransTexas as an additional
defendant. The parties have agreed to binding arbitration in this matter which
is set for January 6, 1997.

Coastal. On October 28, 1991, The Coastal Corporation ("Coastal")
filed an action against TransAmerican that was consolidated in the 49th
Judicial District Court, Webb County, Texas, alleging breach of contract and
tortious interference related to two gas sales contracts and a transportation
agreement, seeking unspecified actual and punitive damages and injunctive
relief. On April 22, 1994, the court entered a judgment adverse to
TransAmerican and TransTexas requiring them to pay $1.3 million plus $0.7
million in attorneys' fees to Coastal. On May 29, 1996, the Court of Appeals
affirmed the judgment. In December 1996, the Supreme Court of Texas declined to
hear the appeal. Consideration of requesting a rehearing is in progress.
Coastal has abstracted the judgment in Webb and Zapata Counties. While this
matter is being judicially resolved, TransTexas is continuing to furnish gas to
Coastal.

Alameda. On May 22, 1993, Alameda Corporation ("Alameda") sued
TransAmerican and John R. Stanley in the 234th Judicial District Court, Harris
County, Texas, claiming that TransAmerican failed to account to Alameda for a
share of the proceeds TransAmerican received in a 1990 settlement of litigation
with El Paso Natural Gas Company ("El Paso"), and that TransAmerican has been
unjustly enriched by its failure to share such proceeds with Alameda. The
court granted Mr. Stanley's motion for summary judgment. On September 20,
1995, the jury rendered a verdict in favor of TransAmerican. Alameda appealed
to the Fourteenth Court of Appeals, which heard oral arguments on December 18,
1996.

Aspen. TransAmerican brought suit on September 29, 1993, against
Aspen Services, Inc. ("Aspen"), seeking an audit and accounting of drilling
costs that Aspen had charged while providing drilling services to
TransAmerican. This suit is pending in the 215th Judicial District Court,
Harris County, Texas. The parties' drilling agreement provided,

19
<PAGE> 23
among other things, that Aspen would receive payment for its drilling-related
costs from the production and sale of gas from the wells that were drilled, and
that the revenues that TransAmerican would otherwise receive from the wells
would be reduced by the amounts received by Aspen. On July 19, 1995, Aspen
filed a counterclaim and third party claim against TransAmerican, TransTexas,
and affiliated entities, asserting, among other things, that these entities
failed to make certain payments and properly market the gas from these wells.
Aspen is seeking damages in an unspecified amount, as well as certain equitable
claims. TransTexas and its affiliates are vigorously contesting this claim.

Kathryn M. On June 8, 1995, Kathryn M., Inc., et al., filed suit
against TransAmerican in the 333rd Judicial District Court (subsequently
transferred to the 334th Judicial District Court), Harris County, Texas,
alleging that the plaintiffs, as nonparticipating royalty interest owners in
certain leases, are entitled to receive a portion of the settlement proceeds
received by TransAmerican from El Paso. On April 16, 1996, additional
nonparticipating royalty interest owners intervened, making the same claims as
the plaintiffs. This matter was dismissed without prejudice in December 1996.

McNamara. On June 28, 1996, TransTexas consummated a settlement of
litigation with Tennessee Gas Pipeline Company ("Tennessee") that was filed on
October 14, 1993 in the 244th Judicial District Court of Ector County, Texas
("Tennessee lawsuit") pursuant to which TransTexas and another plaintiff
received approximately $125 million from Tennessee. TransTexas' share of the
settlement proceeds was $96 million. On July 2, 1996, John McNamara, Jr. et
al. ("The Hubberd Trusts") filed a new suit against TransTexas in the 241st
District Court, Webb County, Texas asserting that TransTexas had breached its
duties to The Hubberd Trusts under certain oil and gas leases and that
TransTexas owed The Hubberd Trusts 25% of the gross settlement proceeds, or
approximately $31.25 million. This matter was settled in December 1996.

Briones. In an arbitration proceeding, Jesus Briones, a lessor,
claimed that one of TransTexas' wells on adjacent lands had been draining
natural gas from a portion of his acreage leased to TransTexas on which no well
had been drilled. On October 31, 1995, the Arbitrator decided that drainage
had occurred. On June 3, 1996, the Arbitrator issued a letter indicating that
drainage damages would be awarded to Briones in the amount of approximately
$1.4 million. The Arbitrator entered his award of damages on June 27, 1996.
On July 3, 1996, TransTexas filed a petition in the 49th Judicial District,
Zapata County, Texas, to vacate the Arbitrator's award. Briones also filed its
petition to confirm the Arbitrator's award. On September 30, 1996, the court
consolidated the petitions into one suit. Discovery is proceeding and a
hearing will be held on January 17, 1997 regarding any pending motions for
summary judgment filed by the parties.

Frost. On November 10, 1994, Frost National Bank filed suit against
TransTexas in the 111th Judicial District Court, Webb County, Texas, seeking a
declaratory judgment determination that TransTexas failed to properly and
accurately calculate royalties under a lease. The plaintiff has demanded $10
million plus interest. This litigation is in the discovery stage and trial is
set for May 19, 1997.

Bentsen. On August 13, 1990, Calvin R. Bentsen, et al. filed suit
against TransAmerican and Mr. Stanley in the 139th Judicial District Court,
Hidalgo County, Texas, seeking a portion of the El Paso settlement proceeds,
and an accounting of monies allegedly owed to them, claiming that TransAmerican
produced gas that belonged to them without their knowledge and that
TransAmerican entered into an oral agreement with them which entitled them to
receive a portion of the El Paso settlement proceeds. TransAmerican intends to
vigorously defend this claim. This case has been reset for trial to begin on
January 27, 1997.

Farias. On February 15, 1996, Celita Suzana Farias filed a wrongful
death action in the 93rd District Court, Hidalgo County, Texas, against
TransTexas and one of its contractors for fatal injuries suffered by the
plaintiff's husband at the Yzaguirre Heirs #3 Well on February 13, 1996. The
plaintiff alleges the defendants operated a crane in such a manner that they
were negligent and grossly negligent. The plaintiff seeks unspecified damages.
On March 7, 1996, the mother of the deceased TransTexas employee filed a
petition in intervention also alleging negligence, gross negligence and malice
and seeking unspecified damages. This litigation is in the discovery stage.

20
<PAGE> 24
General. TransTexas is also named defendant in other ordinary course,
routine litigation incidental to its business. Although the outcome of these
other lawsuits cannot be predicted with certainty, TransTexas does not expect
these matters to have a material adverse effect on its financial position. At
October 31, 1996, the possible range of estimated losses related to all of the
aforementioned claims, in addition to the estimates accrued by TransTexas is $0
to $59 million. The resolution in any reporting period of one or more of these
matters in a manner adverse to TransTexas could have a material impact on
TransTexas' results of operations and cash flows for that period. Litigation
expense, including legal fees, totaled approximately $11 million, $20 million
and $11 million for the years ended July 31, 1993, 1994 and 1995, respectively,
approximately $3 million for the six months ended January 31, 1996 and
approximately $15 million for the nine months ended October 31, 1996.
TransTexas has delivered letters of credit and placed into escrow cash, which
letters of credit and cash total approximately $21.1 million, to be applied to
certain of the litigation claims described above.

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of the Shares
offered hereby.

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted through The Nasdaq Stock Market's National
Market under the symbol "TTXG." The following table sets forth, on a per share
basis for the periods indicated and since the Company's initial public
offering, the high and low sale prices for the Common Stock as reported by the
NNM.

<TABLE>
<CAPTION>
High Low
------- --------
<S> <C> <C>
Fiscal year ended July 31, 1994
Third Quarter (from March 10, 1994) . . . . . . . . . $14.250 $12.375
Fourth Quarter . . . . . . . . . . . . . . . . . . . . 12.750 10.625
Fiscal year ended July 31, 1995
First Quarter . . . . . . . . . . . . . . . . . . . . 13.375 11.000
Second Quarter . . . . . . . . . . . . . . . . . . . 13.750 10.500
Third Quarter . . . . . . . . . . . . . . . . . . . 13.500 9.375
Fourth Quarter . . . . . . . . . . . . . . . . . . . 15.750 13.250
Transition Period ended January 31, 1996
First Quarter ended October 31, 1995 . . . . . . . . . 21.000 14.290
Second Quarter ended January 31, 1996 . . . . . . . . 16.000 10.500
Fiscal year ending January 31, 1997
First Quarter ended April 30, 1996 . . . . . . . . . . 13.000 10.750
Second Quarter ended July 31, 1996 . . . . . . . . . . 10.250 7.250
Third Quarter ended October 31, 1996 . . . . . . . . . 14.250 8.500
</TABLE>

On December 27, 1996, the closing sale price of the Common Stock as
reported by the NNM was $14.50, and there were approximately 40 record holders
of Common Stock.

DIVIDEND POLICY

The Company has not paid any cash dividends on its capital stock since
inception, except a dividend to TransAmerican from the proceeds of its initial
public offering. The Company's ability to pay dividends in the future is
restricted by the Indenture and will depend upon the Company's debt levels,
earning levels and book value and discounted value of certain tangible assets.
The Company would not currently be permitted under the Indenture to declare
dividends other than a dividend payable out of the proceeds of a concurrent
public equity offering. In determining whether to declare and pay a dividend,
the Board of Directors will consider various other factors, including the
Company's capital requirements and financial condition.

21
<PAGE> 25
SELLING SECURITY HOLDER

The Selling Security Holder is Jefferies & Company, Inc. As of the date
hereof, the Selling Security Holder owns 250,000 shares of Common Stock,
representing less than 1% of the total number of shares of Common Stock
outstanding. All of the shares of Common Stock owned by the Selling Security
Holder may be offered hereby. See "Plan of Distribution."

Because the Selling Security Holder may offer some or all of the
Shares, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares, no estimate can
be given as to the number of shares of Common Stock that will be held by the
Selling Security Holder upon completion of this offering. The Selling Security
Holder has in the past provided and may continue to provide certain investment
banking and financial advisory services to the Company and certain of its
affiliates for which the Selling Security Holder has received and may receive
customary fees.

PLAN OF DISTRIBUTION

The Shares may be sold from time to time by the Selling Security Holder
in underwritten offerings or in open market or block transactions or otherwise
on the NNM, or such other national securities exchange or automated interdealer
quotation system on which shares of Common Stock are then listed, in the
over-the-counter market, or in private transactions, at prices related to
prevailing market prices or at negotiated prices. Some or all of the Shares may
be sold to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Security Holder or purchasers of shares for whom such broker-dealers may
act as agent or to whom they sell as principal or both. In effecting sales,
participating broker-dealers or purchasers of the Shares may arrange for other
broker-dealers to participate. In addition, any of the Shares covered by this
Prospectus that qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than pursuant to this Prospectus.

If underwriters are used in an offering of Shares, the Shares will be
acquired by the underwriters for their own accounts and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or prices, at prices related to the prevailing
market prices at the time of sale or at negotiated prices. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time. Underwriters may sell Shares to or
through broker-dealers, and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters or
commissions from the purchasers.

Upon any sale of the Common Stock offered hereby, the Selling Security
Holder, any underwriter and any participating broker-dealers or selling agents
may be deemed to be "underwriters" as that term is defined in the Securities
Act, in which event any discount, concession or commissions received by them,
which are not expected to exceed those customary in the types of transactions
involved, or any profit on resales of the Common Stock by them, may be deemed to
be underwriting commissions or discounts under the Securities Act. The Company
will not receive any of the proceeds from the sale by the Selling Security
Holder of the Common Stock offered hereby. See "Use of Proceeds." The Selling
Security Holder has agreed to pay all expenses in connection with the
registration and sale of the Shares. Underwriters, broker-dealers and agents may
be

<PAGE> 26
entitled, under agreements entered into with the Company or Selling Security
Holder, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.

At the time a particular offer of Common Stock is made, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
aggregate amount of Common Stock being offered and the terms of the offering,
including shares being offered and the terms of the offering, including the
name or names of any underwriters, broker-dealers or selling agents, any
discounts, commissions and other items constituting compensation from the
Selling

22
<PAGE> 27
Security Holder and any discounts, commissions or concessions allowed or
reallowed or paid to underwriters, broker-dealers or selling agents.

LEGAL MATTERS

The validity of the Common Stock offered hereby has been passed upon
for the Company by Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower, Dallas,
Texas 75201.

INDEPENDENT ACCOUNTANTS

The consolidated balance sheets as of July 31, 1994 and 1995 and
January 31, 1996, and the related consolidated statements of operations and
cash flows for each of the three years in the period ended July 31, 1995 and
the six months ended January 31, 1996, and the related statement of
stockholders' deficit for each of the two years ended July 31, 1995 and the
six-month period ended January 31, 1996, and related schedules, incorporated by
reference in this prospectus, have been incorporated herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in auditing and accounting. With respect to
the unaudited interim financial information for the periods ended October 31,
1995, April 30, 1996, July 31, 1996 and October 31, 1996 incorporated by
reference in this prospectus, the independent accountants have reported that
they have applied limited procedures in accordance with professional standards
for a review of such information. However, their separate reports included in
the Company's quarterly reports on Form 10-Q for the quarters ended October 31,
1995, April 30, 1996, July 31, 1996 and October 31, 1996, and incorporated by
reference herein, state that they did not audit and they do not express an
opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. The accountants are not
subject to the liability provisions of Section 11 of the Securities Act for
their report on the unaudited interim financial information because that report
is not a "report" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act.

EXPERTS

The reserve estimates of the Company included in the Company's Form
10-K for the transition period ended January 31, 1996 have been incorporated by
reference in this Prospectus and the Registration Statement in reliance upon
reserve reports and summary letters prepared by Netherland, Sewell &
Associates, Inc., upon the authority of such firm as experts in estimating
proved oil and gas reserves.

23
<PAGE> 28
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Jefferies & Company, Inc. has agreed to pay all expenses in connection
with the issuance and distribution of the securities being registered pursuant
to this Registration Statement. The following table sets forth an estimate of
such expenses:

<TABLE>
<CAPTION>
ITEM AMOUNT*
---- -------
<S> <C>
Securities and Exchange Commission fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,098
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Fees and expenses for qualification under state securities laws . . . . . . . . . . . . . . . . 500
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,152
------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,250
======
</TABLE>

______________________

* All expenses are estimated, except the Securities and Exchange Commission
fee.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law (the "DGCL") provides that any person may be
indemnified by a Delaware corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed action,
suit or proceeding in which such person is made a party by reason of his being
or having been a director, officer, employee or agent of the Company. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.

Section nine of the Company's Certificate of Incorporation provides
that directors of the Company shall not, to the fullest extent permitted by the
DGCL, as amended from time to time, be liable to the Company or its
stockholders for monetary damages for breach of their fiduciary duty to the
Company or the Company's stockholders.

The Company has entered into indemnification agreements with its
executive officers and directors that will contractually provide for
indemnification and expense advancement and include related provisions meant to
facilitate the indemnitees' receipt of such benefits. In addition, the Company
has purchased customary directors' and officers' liability insurance policies
for its directors and officers. The Bylaws of the Company and agreements with
directors and officers also provide for indemnification for amounts (i) in
respect of the deductibles for such insurance policies and (ii) that exceed the
liability limits of such insurance policies. Such indemnification may be made
even though directors and officers would not otherwise be entitled to
indemnification under other provisions of the Bylaws or such agreements.

II-1
<PAGE> 29
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

5.1 -- Legal Opinion of Gardere & Wynne, L.L.P.

12.1 -- Statement regarding computation of ratio of earnings to fixed
charges.

15.1 -- Awareness Letter of Coopers & Lybrand, L.L.P.

23.1 -- Consent of Coopers & Lybrand L.L.P.

23.2 -- Consent of Gardere & Wynne, L.L.P. (set forth in Exhibit 5.1)

23.3 -- Consent of Netherland, Sewell & Associates, Inc.

24.1 -- Power of Attorney (set forth on page II-4 hereof)
<PAGE> 30

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended ("Act");

(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;

provided, however, that paragraphs (i) and (ii) above do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by
the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act")
that are incorporated by reference in the Registration
Statement.

(2) That, for the purpose of determining any liability
under the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.

II-2
<PAGE> 31
(4) That, for purposes of determining any liability under
the Act, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

(5) That, insofar as indemnification for liabilities
arising under the Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

(6) That, for purposes of determining any liability under
the Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.

(7) That, for the purpose of determining any liability
under the Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 32
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on the
31st day of December, 1996.

TRANSTEXAS GAS CORPORATION

By: /s/ Ed Donahue
----------------------------------
Ed Donahue, Vice President and
Chief Financial Officer

POWER OF ATTORNEY

Each of the undersigned hereby appoints John R. Stanley and Edwin B.
Donahue, and each of them, as attorney and agent for the undersigned, with full
power of substitution, for and in the name, place and stead of the undersigned,
to sign and file with the Securities and Exchange Commission under the
Securities Act any and all amendments (including post-effective amendments) and
exhibits to this Registration Statement and any and all applications,
instruments, and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby,
with full power and authority to do and perform any and all acts and things
whatsoever requisite or desirable.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 31, 1996.

<TABLE>
<CAPTION>
Name Title
<S> <C>
/s/ John R. Stanley Director and Chief Executive Officer
- ------------------------------------------- (Principal Executive Officer)
John R. Stanley

/s/ Thomas B. McDade Director
- -------------------------------------------
Thomas B. McDade

/s/ Ed Donahue Vice President and Chief Financial Officer (Principal
- ------------------------------------------- Financial Officer and Principal Accounting Officer)
Ed Donahue

/s/ James R. Lesch Director
- -------------------------------------------
James R. Lesch

/s/ Robert L. May Director
- -------------------------------------------
Robert L. May

/s/ Donald D. Sykora Director
- -------------------------------------------
Donald D. Sykora

</TABLE>

II-4
<PAGE> 33

INDEX TO EXHIBITS

5.1 -- Legal Opinion of Gardere & Wynne, L.L.P.

12.1 -- Statement regarding computation of ratio of earnings to fixed
charges.

15.1 -- Awareness Letter of Coopers & Lybrand, L.L.P.

23.1 -- Consent of Coopers & Lybrand L.L.P.

23.2 -- Consent of Gardere & Wynne, L.L.P. (set forth in Exhibit 5.1)

23.3 -- Consent of Netherland, Sewell & Associates, Inc.

24.1 -- Power of Attorney (set forth on page II-4 hereof)

<PAGE> 1
EXHIBIT 5.1

[GARDERE & WYNNE, L.L.P. LETTERHEAD]

(214) 999-3000

December 30, 1996

TransTexas Gas Corporation
1300 East North Belt
Suite 310
Houston, Texas 77032-2949

Gentlemen:

We have served as counsel for TransTexas Gas Corporation, a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 (the "Registration Statement"), filed with the Securities and Exchange
Commission in connection with the registration under the Securities Act of
1933, as amended, of 250,000 shares of Common Stock, $0.01 par value, of the
Company (the "Shares") to be sold by Jefferies & Company, Inc.

With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinion expressed
below.

Based upon the foregoing, we are of the opinion that the Shares are
duly authorized, validly issued, fully paid and nonassessable.

We consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and further consent to the use of our name in the
Registration Statement and the Prospectus included therein under the heading
"Legal Matters."

Very truly yours,

GARDERE & WYNNE, L.L.P.

By: /s/ C. ROBERT BUTTERFIELD
----------------------------------
C. Robert Butterfield, Partner

<PAGE> 1
EXHIBIT 12.1

TRANSTEXAS GAS CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands of dollars)

Six Months
Ended
YEAR ENDED JULY 31, January 31,
----------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes $55,917 $56,683 $110,363 $29,136 $(14,307) $ (375) $(1,188)
Add:
Interest expense, net of amounts capitalized 1,989 3,152 2,982 51,671 68,508 29,971 43,370
Portion of rental expense representative
of an interest factor 133 215 274 379 530 283 337
------- ------- -------- ------- -------- ------- -------
Earnings (B) $58,039 $60,050 $113,619 $81,186 $ 54,731 $29,879 $42,519
======= ======= ======== ======= ======== ======= =======
Fixed charges:
Total interest 1,989 3,152 2,982 52,381 69,391 29,971 50,751
Portion of rental expense representative
of an interest factor 133 215 274 379 530 283 337
------- ------- -------- ------- -------- ------- -------
Fixed charges (A) $ 2,122 $ 3,367 $ 3,256 $52,760 $ 69,921 $30,254 $51,088
======= ======= ======== ======= ======== ======= =======
Ratio of earnings to fixed charges (B divided by A) 27.4 17.8 34.9 1.5 -- -- --
======= ======= ======== ======= ======== ======= =======
Earnings inadequate to cover fixed charges $ -- $ -- $ -- $ -- $ 15,190 $ 375 $ 8,569
======= ======= ======== ======= ======== ======= =======
</TABLE>

<TABLE>
<Caption
Nine Months Ended
October 31,
------------------------
1995 1996
------- --------
<S> <C> <C>
Income (loss) before taxes $(2,403) $ 67,914
Add:
Interest expense, net of amounts capitalized 59,627 73,382
Portion of rental expense representative of an interest factor 656 795
------- --------
Earnings (B) $57,880 $142,091
======= ========
Fixed charges:
Total interest $64,517 $ 84,745
Portion of rental expense representative of an interest factor 656 795
------- --------
Fixed charges (A) $65,173 $ 85,540
======= ========
Ratio of earnings to fixed charges (B divided by A) -- 1.7
======= ========
Earnings inadequate to cover fixed charges $ 7,293 $ --
======= ========
</TABLE>

<PAGE> 1
EXHIBIT 15.1

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: TransTexas Gas Corporation (the "Company")
Registration Statement on Form S-3

Ladies and Gentlemen:

We are aware that our reports dated December 14, 1995, June 14, 1996,
September 16, 1996 and December 16, 1996 on our review of interim condensed
consolidated financial information of the Company for the three month period
ended October 31, 1995, the three month period ended April 30, 1996, the three
and six month periods ended July 31, 1996 and the three and nine month periods
ended October 31, 1996, respectively, which are included in the Company's
reports on Form 10-Q for the quarters then ended, are incorporated by reference
in the Company's Registration Statement on Form S-3, filed with the Securities
and Exchange Commission on December 31, 1996. Pursuant to Rule 436(c) under the
Securities Act of 1933, as amended (the "Act"), these reports should not be a
part of the registration statement prepared or certified by us within the
meaning of Sections 7 and 11 of the Act.

COOPERS & LYBRAND, L.L.P.

Houston, Texas
December 31, 1996

<PAGE> 1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration
Statement of TransTexas Gas Corporation on Form S-3 as filed with the
Securities and Exchange Commission on December 31, 1996 of our report dated
April 29, 1996 relating to our audit of the consolidated balance sheet of
TransTexas Gas Corporation as of January 31, 1996 and July 31, 1995 and 1994;
the related consolidated statements of operations and cash flows for the six
months ended January 31, 1996 and each of the three years ended July 31, 1995;
and the statement of stockholders' deficit for the six months ended January 31,
1996 and each of the two years ended July 31, 1995. We also consent to the
reference to our firm under the caption "Independent Accountants."

COOPERS & LYBRAND L.L.P.

Houston, Texas
December 31, 1996

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS

We consent to the incorporation by reference in the Registration
Statement of TransTexas Gas Corporation on Form S-3 as filed with the
Securities and Exchange Commission on December 31, 1996 of our reserve report
dated February 1, 1996, and to the references to our name under the caption
"Experts" and elsewhere in the form and context in which it appears in such
Registration Statement.

NETHERLAND, SEWELL & ASSOCIATES, INC.

Houston, Texas BY: /s/ DANNY D. SIMMONS
December 31, 1996 ----------------------------
Danny D. Simmons,
Senior Vice President